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Sustainable Finance Community Update

Working towards a sustainable future

An IFoA Sustainability Board initiative. Follow us on LinkedIn and Twitter for further updates and insights, and subscribe to the newsletter here.
22nd October 2021
In the news: in a push to decarbonise ocean shipping, internationals including Amazon, Ikea and Unilever have pledged to use exclusively zero-emission ships by 2040. The World Resources Institute reports that shipping contributes 1.7% of global greenhouse gas emissions; the International Maritime Organisation calculates this as a higher rate of 2.9%. The aspiration is that multinationals' pledges like this will drive investment in cleaner fuels and infrastructure.
Pictured above: containers lined up in Bukit Merah, Singapore by CHUTTERSNAP on Unsplash.
This week's updates at a glance:

From the editors...
In the news...
From the editors
Want to do more in the sustainability space?
Are you recently qualified or a student of the IFOA?
The Sustainability Board is building a small group of volunteers to give their voice to Sustainability Board matters. 
Please refer to the Sustainability Early Careers Board opportunity on the IFOA web site (Volunteer vacancies | Institute and Faculty of Actuaries) to read more on what it’s all about and the time commitment involved (which reflects the pressures we know students have on their time).
There is a simple process to express interest, but please note the approaching closing date of 24th October.
In the news
‘Burning of Fossil Fuels is Killing Us’ – Declares New WHO Climate and Health Report
A sweeping World Health Organization report on Climate and Health, published just ahead of the critical Glasgow climate conference (COP26), which begins 31 October, has declared that “the burning of fossil fuels is killing us". “Climate change is the single biggest health threat facing humanity,” adds the report, whose publication was accompanied by an open appeal to governments signed by some 300 health organisations, representing 45 million health workers worldwide. This is two-thirds of the global health workforce.

The “COP26 Special Report on Climate Change and Health” provides little in the way of brand new data on a much-discussed issue. However, it is the boldest yet of WHO’s recent statements on increasingly alarming trends – leading to more extreme heat episodes, fires, floods, droughts, and air pollution – which in turn create a cascade of health effects.

Read the article here (Health Policy Watch).
UK plans to reach net zero by attracting £90bn in private funding

A 368-page document by the UK Treasury published on Tuesday highlighted that the move away from fossil fuels would lead to the drying up of receipts from fuel duty and vehicle excise duty. The transition to electric vehicles would ultimately create a temporary tax vacuum equivalent to 1.5% of GDP by the 2040s which could only be partially filled by carbon taxes, meaning that new revenue-raising measures would be needed. “Who actually pays for net zero will be one of the policy questions that dominates both government and boardroom discussions over the next decade,” said Mats Persson, a partner at EY and a former Downing Street adviser. 

The document warned that “if there is to be additional public spending, the government may need to consider changes to existing taxes and new sources of revenue throughout the transition.” The alternative — using borrowing to pay for the costs — would be unfair to future generations and would not be fiscally sustainable, the report added. The report also warned that some industries could opt to leave the UK for countries with “less stringent” climate change mitigation policies. The Treasury assessment was published as Boris Johnson set out plans to attract £90bn in private sector investment over the next decade as part of the UK Prime Minister’s long-awaited strategy on how to prepare the economy to hit its net zero target in the middle of the century.

Read the article here (FT - paywall).
Amazon, Ikea and Unilever commit to zero-emission shipping by 2040
A group of nine multinationals including Amazon have committed to use zero-emission ships by the year 2040 in a huge step towards decarbonising ocean shipping, which is responsible for 1.7% of the world’s greenhouse emissions. The group suggested that to achieve the target the fuels and ships to be used must be sufficiently scalable and the fuels should have zero greenhouse gas emissions on a lifecycle basis including production, not just during use. However there are no such zero-carbon fuels available in sufficient quantity that can help decarbonise the industry. 

The group explicitly ruled out using ships that run on liquefied natural gas, which puts pressure on companies to power those vessels with green methane. The group also demanded regulatory support through aligning decarbonisation goals with the Paris Agreement and market-based measures such as a carbon tax to make zero-carbon fuels competitive with fossil fuels, which are estimated to cost about three times as much.

Read the article here (FT - paywall).
Nuclear power crucial to Japan's net-zero goal: industry minister
Koichi Hagiuda, Minister of Economy, Trade and Industry, says Japan should consider every option and nuclear power is indispensable to decarbonising Japan to meet its goal of going carbon neutral by 2050 whilst ensuring a stable and affordable electricity supply. Former Environment Minister Shinjiro had been reluctant to consider nuclear power.

Safety would be a top priority and the aim is to only restart the nuclear reactors which have been offline since 2011. As per the current Japanese regulations, nuclear reactors can stay operational for up to 60 years, which would lead to all existing facilities going offline by 2060 latest. Additionally, swift measures such as greater use of storage batteries would be taken to address shortcomings in existing power grids, which led to a reduction in output in the past. 

Read the article here (Nikkei Asia).
What we're reading
The journey to net zero - An insurer’s guide to navigating climate risks and opportunities
This report highlights how insurers and reinsurers would be expected to play a larger role in the commercial assessment of natural disasters to help mitigate effects of climate change, build resilience to its effects, and support the transition to a low-carbon economy.  The increasing volatility of loss-causing climate-related events, along with growing financial risks to assets in investment portfolios, present a dual threat. However, climate change uncertainty also presents opportunities to develop a sustainable, progressive and commercially successful strategy for business.

The report seeks to reinforce that climate risk is an enterprise risk for insurers. This is explained further in the report by providing practical and pragmatic insights into the challenges of defining, quantifying and managing climate risks without forgetting the opportunities that the climate transition presents. 

Read the report here (Willis Towers Watson). 
Explainer: Net zero - just patching over emissions or path for saving planet?
In 2015, more than 190 countries committed to limiting global warming to 1.5 degrees Celsius. The central goal of the Paris Agreement was to bring global carbon dioxide emissions to ‘net zero’ by 2050.

Net zero does not mean zero emissions, but instead balancing out remaining greenhouse gases with other actions. This means some sectors are expected to be still releasing greenhouse gases beyond 2050. To offset them, emitters count on projects that cut emissions elsewhere, using natural solutions or technology to stop these emissions from reaching the atmosphere.

Global emissions hit a record of 59.1bn tons in 2020. To achieve net zero on a global scale would require new forests at least five times the size of India, or more than all farmland on the planet. Carbon Capture and Storage (CCS) technology capacity is only about 40m tons of CO2.  Projects in development of Direct Air Capture (DAC) technology could only remove another 150m tons of CO2.

Read the report here (Reuters).
Tune in
Ted Talk: Why COP26 is our best chance for a greener future
Alok Sharma, the President-Designate of COP26, argues that what COP26 really stands for is our last chance to avoid the worst effects of climate change. He has witnessed the terrible effects the crisis is already having in developing countries amongst people whom he believes have done the very least to cause it, which he, like many others, finds to be unjust.

To avoid the worst effects of climate change, we must limit the rise in average global temperature to 1.5 degrees Celsius. If the temperatures rise higher, the risks of both species extinction and catastrophic impacts on human lives increase dramatically. 

We need governments to take the lead to ensure the green transition moves more quickly, to keep the 1.5 degree limit alive. We need them to set targets to reduce emissions, and to make this the COP that consigns coal power to history. We need developed countries to deliver the finance they have promised developing countries, and world leaders to take this chance to turn hope into certainty.

On demand here (Ted Talks).
The $5 trillion insurance industry faces a reckoning.
Blame climate change

In the first half of 2021, disasters inflicted $42bn in losses covered by insurance in the United States, a 10-year high. In September, Hurricane Ida cut a path of destruction through the Gulf Coast, causing between $31bn and $44bn in insured losses. If current trends continue, insurers could suffer one of the costliest years in recent memory.

Climate change connects many disasters and worsens them in ways many insurers have not yet recognised. This article argues that insurance isn’t yet ready for the full consequences of climate change that lie ahead, which could harm both insurers and their customers. “In fact, these threats are already playing out in some local insurance markets within regions of the United States affected by hurricanes and wildfires,” says a climate change and economy roadmap released by the White House on October 15.

Read the article here (Vox).
Reinsurance rates must rise, to cover rising climate risks: Swiss Re’s Reichelt
“The effects of climate change are manifesting in greater weather extremes. In combination with development and rising wealth, perils such as floods, wildfires and hail are set to deliver rising catastrophe losses,” explains Frank Reichelt, the Head of Northern, Central & Eastern Europe at Swiss Re.

The major flooding in Europe in July is estimated to have cost the insurance and reinsurance industry around US $12bn by Swiss Re. The reinsurer believes that climate change will make this kind of event a more regular occurrence and potentially much more impactful, saying that increases in insured losses by as much as 200% are possible over the coming years.

More protection is going to be needed, as climate risk increases amounts of economic value-at-risk, which will need insuring. For the reinsurance industry to fulfil its commitment, the prices must be commensurate with the risks covered. As a result, it is expected for the increase in reinsurance rates to continue at the upcoming January renewals due to the level of catastrophe losses experienced in Europe this year.

Read the piece here (Artemis).
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Communication is at the heart of shifting mindsets on climate and sustainability issues, and is vital in highlighting and understanding steps we can take as finance professionals to implement positive change.

The purpose of Sustainable Finance Community is to encourage members to read, share and discuss content, in order to help us with this aim. We want to encourage information to flow both ways, so please get in touch by replying to or follow us on LinkedIn and Twitter.

The weekly newsletter summarises information from different sources for the benefit of subscribers. While we take care to select articles, papers and opinions from reputable sources, we do not perform independent verification and hence these summaries should not be relied upon for any purpose. Further, the statements, opinions and conclusions that are summarised within the newsletter do not necessarily represent the views of the IFoA nor the newsletter authors and their employers.

This initiative is brought to you by the Institute and Faculty of Actuaries (IFoA) Sustainability Board (formerly Resource & Environment Board). The Sustainability Board is a group of voluntary actuaries working with the IFoA to encourage change within finance. We work alongside - but separately to - the IFoA and as such this is not an IFoA communication. Find out more about the IFoA Sustainability Board here.

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